1. Field of the Invention
This invention generally relates to a system and method for generating target prices for competitively bid goods and services. More particularly, the present invention relates to a system and method for generating target bid prices in a business-to-business selling environment that takes into account such factors as the cost of serving customers, the customer's price sensitivity, and the competitive environment including potential competitor response to bid pricing levels.
2. Description of the Related Art
In certain industries, companies bid on work to be performed on behalf of third parties, such work typically being either the production of a product or the provision of a service. Such companies often competitively bid against one another for a contract to perform work for a specific third party. In making a bid for a contract or to provide a certain set of products or services, the goal is to make an exact bid where the company balances the likelihood of winning the bid at a given price with the profit that will be obtained if the bid is won at that price, or bid a “target price” for the given contract.
In order to make a satisfactory bid to obtain a contract or other agreement for the provision of a product or service, a company must evaluate the aspects for the specific bid parameters that, if properly reflected in the bid price, enable the company to properly balance the likelihood of winning the bid with the profit achieved is the bid is won. Traditionally, bid pricing has been assisted by computer systems that estimate the cost of serving individual customers, taking into account the special factors affecting the bid price. These typical “cost-of-service” based bidding systems compute a price floor or minimum bid for a prospective contract or other agreement based on the cost of delivering the products or services and the actual calculation of profit for the contract is subjectively left to the company. Consequently, while the traditional cost-of-service based bidding systems can provide guidance on the minimum bid, they provide no guidance for the optimal way to balance the likelihood of winning the bid with the profit achieved if the bid is won. This guidance can only be provided if a target price is established that balances the likelihood of winning the bid with the profit achieved if the bid is won by maximizing the expected profit that is achieved from the target price.
Furthermore, traditional cost-of-service based bidding systems have a number of drawbacks as pricing tools for competitively bid goods and services as they lack the ability to factor the market response of customers and competitors to pricing decisions. This is mainly because the systems are cost-focused, even though shipping clients may increasingly demand products and services that are tailored to their specific needs. The traditional cost-of-service based bidding systems also lack the ability to track and analyze post-bid information, such as wins and losses, profitability of won bids, and otherwise capture useful data which can be analyzed for the generation of future bids.
There are systems in the art, such as in airline seat and commodities pricing, that can reflect market and competitor response characteristics in bid pricing. However, such systems typically generate pricing information for an individual product or service at a particular point in time, such as an airline seat on a particular flight or a specific commodity futures contract. As a result, these systems are not directly applicable to bidding systems for parcel shipping services, which usually price a portfolio of parcel shipping services to be performed over an extended contract period.
Thus, there is a need for a method of bid pricing that takes market and competitor response characteristics into account when generating bid prices. There is a further need for a bid pricing method that takes market and competitor response characteristics into account when generating bids for portfolios of products and services to be performed over extended contract periods. It is to the provision of such an improved system and method that the present invention is primarily directed.